You wrote a great advert and have sold your used car for the best price. Now you need to agree on how the buyer will pay for your car.
There are three methods of payment: cash, a cheque or banker’s draft, or electronic transfer. In all cases, don’t hand over the car keys or documents until the money is safe – regardless of whether it’s cash or electronic. The transaction isn’t complete until you have received cleared funds.
Make sure you give the seller a receipt when payment for the car has been made. Keep a receipt for yourself, too.
Payment in cash
Cash is the most immediate form of payment, so it’s ideal if you’re selling a used car for a relatively small sum. Make sure you count the money in front of the buyer. Ideally, arrange for the handover of the cash to take place in a bank. The cashier can count the money and ensure the notes are genuine, plus the funds can go straight into your account.
Be careful when walking around with large sums of money. Keep the notes hidden and don’t remove them from your pocket or bag until you reach the bank.
Bank transfer
A bank transfer is the safest and most convenient method of payment. How long it takes for the funds to clear depends on whether it’s via Faster Payments or the Clearance House Automated Payment System (CHAPS).
If your bank or building society accepts Faster Payments, the payment will arrive almost immediately, although in some cases it can take up to two hours. These electronic payments can be made online, over the phone or via a bank using a self-service machine.
A CHAPS payment could take longer. It is guaranteed to arrive on the day the buyer makes the payment, as long as it’s done before 3.30pm in a bank or over the phone, or 5pm if online. A payment made after these times, over the weekend or on a public holiday will clear on the next working day.
In both cases, make sure the payment is showing as clear funds before releasing the car. If in doubt, contact your bank.
Cheque or banker’s draft
If you’re accepting payment via cheque or banker’s draft, you’ll need to inform the car buyer that you won’t release the car until clearance of funds. Be warned: seeing the funds in your account isn’t the same as cleared funds. Your bank will tell you when the transaction is complete.
Make sure you have proof of the buyer’s name and address when they are paying by cheque or banker’s draft. A utility bill is a valid proof of address. Forged cheques and banker’s drafts are commonplace, so be on your guard.
PayPal
PayPal is ideal for paying for goods online, but it’s not recommended for buying and selling cars. There’s no safety net for the buyer or seller, as vehicles are exempt from PayPal’s protection policies.
While this does mean that once the transaction is authorised, the payment is final, you’re exposed to potential fraudulent activity. The account could have been set-up using false credit card details, or the buyer might have unauthorised access to somebody’s account.
As bank transfers are swift and secure, there’s no reason to use PayPal or another form of e-payment. It also means that neither the seller nor the buyer will have to pay any PayPal fees.
Escrow
Although it’s rare, some cars are bought and sold using escrow. This is when funds are trusted to a neutral third party until a set of conditions are met by the buyer and seller. Escrow might typically be used for expensive classic cars and supercars.
You should ensure that the third party company is legitimate by checking with the Financial Conduct Authority (FCA). If in doubt, use one of the other forms of payment listed above.
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